D.R. Horton CEO Don Tomnitz was chock-full of praise and pride Friday during the company's second quarter earnings call, taking time to profusely thank all the company's employees for helping it achieve something that even he wasn't sure would be possible-- profitability for the second quarter in a row.
The Fort Worth, Texas-based company posted earnings of $0.04 per share for its second quarter, beating the consensus of analysts' estimates by a nickel and last year's same quarter loss of $0.34 per share.
The company was able to convert a record 103% of its backlog into closings, which were up by 19% to 4,260 homes. Margins were 18%.
An even more impressive number was the 6,438 sales orders the company collected in the quarter, up 55% over the same quarter in 2009 and 59% from its first quarter.
"It's all about sales," Tomnitz said during his opening remarks. "One of our Hortonisms is: 'Nothing happens until we sell something.'"
Several times Tomnitz expressed his belief that Horton is performing better than other builders.
"D.R. Horton is leading the industry into the housing recovery with a superior business model," he said.
And the company isn't expecting to slow down much in its third quarter, which ends June 30, along with the deadline when home buyers must complete their transactions as part of the extended federal home buyer tax credit.
The company geared up its spec home construction to be ready for an expected lift from the tax credit, ending with 2,900 completed specs on March 31.
"We have entered into more finished lot deals than anyone else in the industry," Tomnitz said. "We have opened more communities than any other home builder."
Those new lots in new communities opened in 2009 or more recently at new lower prices are helping to boost the company's profitability. Margins in those new communities are 200 to 300 basis points higher, executives said. Roughly 25% of the recent closings are in these new communities.
Faced with questions from analysts asking about whether the company might have overbought land, Tomnitz reiterated that the company's business model is to tie up land through options rather than through outright purchases to preserve capital outlays. And when the company does buy land, the guidelines are that the capital needs to be repaid within 12 months.
"We are not out buying land, we are out optioning land," he said.
Tomnitz said the company doesn't have any trouble finding land owners willing to option lots to the company because it has a track record of turning even the optioned land quickly by building spec on the land rather than waiting for a buyer to choose the lot.
In response to analysts' questions about the company's elevated spec home inventory, executives said they were comfortable with their numbers and their ability to bring them down or ramp them up as the market demands.
"Specs have been strength for our company," said Tomnitz. Executives said the margins on the pre-built houses are close to what built-to-order homes bring, the key is to sell them quickly and not let them sit.
In other news, the company announced the restructuring and pay-down of debt that totaled $524.8 million. The company's cash position is $1.8 billion, including cash and marketable securities.